SOURCE: CSI Technology Outfitters

April 03, 2007 10:42 ET

Computer Software Innovations, Inc. Announces Fiscal Year and Fourth Quarter 2006 Results

Fiscal Year 2006 Consolidated Revenues of Approximately $28.6 Million, Up 17.6% From Last Fiscal Year; Balance Sheet Total Debt Reduced by Approximately $800,000 During 2006

EASLEY, SC -- (MARKET WIRE) -- April 3, 2007 -- Computer Software Innovations, Inc. (OTCBB: CSWI), CSI Technology Outfitters™ ("CSI") today announced its financial results for the fourth quarter and year ended December 31, 2006.

CSI posted revenues of approximately $5.9 million for the fourth quarter ended December 31, 2006, which is relatively the same performance compared to the fourth quarter of 2005. CSI ended the year with orders on hand for an additional $3.5 million of product with backordered components from its suppliers, and postponed software installations. This should enhance the financial performance of the first quarter of 2007. Traditionally, the first and fourth quarters are generally the lower revenue-producing quarters for CSI, with the second and third quarters being the highest. Schools prefer to have technology installed during the summer months and many clients have funding cycles beginning July 1.

Gross profit for the fourth quarter 2006 was approximately $1.0 million, a decrease compared to the fourth quarter 2005. The decrease in gross profit can be attributed primarily to the shifts in technology product mix from higher margin internet telephony to lower margin interactive whiteboard solutions. Operating loss for the quarter was approximately $576,000, a slight increase over the operating loss of approximately $571,000 for the same period in the prior year.

CSI posted a net loss for the quarter ended December 31, 2006 of approximately $812,000 or $0.24 loss per diluted share, compared to net income of approximately $326,000 and $0.03 earnings per diluted share for the same period last year. The profit in the fourth quarter of the prior year was primarily due to a $1.6 million non-cash gain recorded to market our warrants. The warrants were initially recorded as a liability due to a cash-based penalty in the related registration rights agreement. The warrants were reclassified to equity in the fourth quarter of 2005 following an amendment to the agreement. Thereafter, no such adjustments were recorded (see our Form 10-KSB for the year ended December 31, 2006 for details). In the fourth quarter of 2006, the Company incurred a non-cash loss on warrants of $329,000 due to a repricing of a portion of the warrants. With the impact of the warrants and stock-based compensation being non-cash charges, the Company's cash flow improved slightly over the prior year's quarter, despite the drop in reported net income.

For the year ended December 31, 2006, revenues were approximately $28.6 million, up 17.6% from approximately $24.3 million for the prior year. Gross profit for the year was approximately $6.4 million, a slight decrease compared to 2005. The gross margin decreased from 27.0% in 2005 to 22.3% in 2006, due to the unfavorable changes in technology product mix, which increased cost of sales excluding depreciation, amortization and capitalization. Operating loss for the year was approximately $243,000 compared to approximately $186,000 for the same period in 2005. Net loss for the year was approximately $880,000 compared to the net loss of approximately $757,000 for the comparable period of 2005. For 2006, increased software sales volumes and product mix contributed to the growth in revenues, coupled with an increase in technology sales overall. The increase in operating loss for the period resulted primarily from decreases in the technology solutions gross profit, coupled with increased non-cash, stock-based compensation costs and increases in professional and legal compliance-related costs primarily associated with Sarbanes-Oxley compliance work in 2006, significantly offset by the reduction in costs related to going public through the reverse merger in 2005. The majority of the stock-based compensation recorded in 2006 was related to the reverse merger and, excluding the impact related to future acquisition activity, is expected to decline by $600,000 in 2007.

The Company did not post a profit in 2006 due to large non-cash expenses, primarily approximately $1.0 million in stock-based compensation, which we anticipate will be substantially reduced in 2007, and due to the warrant price reset. Conversely, the loss in 2005 was due to cash outlays related to the reverse merger. Accordingly, the Company's cash flows improved significantly and resulted in an $800,000 reduction in debt.

Nancy Hedrick, CEO of CSI, stated, "We are pleased with our progress across several fronts this past year. While the majority of what we accomplished is not prevalent in our financial profile, we believe the Company is better positioned to gain additional penetration in our target markets over the coming year. However, while each division of our business saw moderate growth over the previous year, the Company as a whole did not. What is not evident in the final numbers is the nearly $3.5 million in technology and software revenues which we did not finalize in the fourth quarter. These revenues will be realized during this first quarter of 2007. Our focus remains on greater software sales penetration during 2007. The recent acquisition of McAleer Computer Associates, Inc. will help to achieve this objective, while also adding more balance to our sales with higher margins, and providing cross-selling opportunities for our technology division.

"During 2006 we saw a decrease in E-Rate related revenues, which impacted both our top and bottom lines and our margins. However, we were recently awarded contracts exceeding $24 million, representing a 43% increase in total E-Rate awards over 2006. While we can't estimate the amount that will be funded, we are optimistic the increase in contract awards will result in an increase in funding and related revenues in 2007. We remain focused on securing new accounts in each segment of our business by expanding product offerings such as the recent release of our SmartFusion™ financial management suite which has received excellent response since its introduction earlier this year. Our objective is to deliver greater long-term recurring revenues via our software applications and engineering services, while recognizing opportunities with our technologies solution team. We believe we are well positioned to show improvement in our financial performance in the first quarter of 2007," further commented Ms. Hedrick.

The Company will hold a shareholders update conference call the week of April 16, 2007. A formal announcement regarding the call will be released later this week with dial-in and webcast information.

About Computer Software Innovations, Inc.

Computer Software Innovations, Inc. (OTCBB: CSWI), CSI Technology Outfitters™, is a full service Company providing software and technology solutions primarily to public sector organizations. The software solutions include financial management, billing and revenue management, school activity accounting, lesson planning and automated workflow. The technology solutions include IP telephony, IP video surveillance, visual communications, interactive classrooms, network security and traffic monitoring, infrastructure design, wireless solutions, network management, engineering services and hardware solutions. CSI's client base includes school districts, higher education, municipalities, county governments, and other non-profit organizations. Currently, more than 400 public sector organizations utilize CSI's software systems and network integration services. Additional information on CSI can be obtained through its website at www.csioutfitters.com.

Forward-Looking and Cautionary Statements

Certain information contained in this news release includes forward-looking statements that involve substantial risk and uncertainties. Any statement in this news release that is not a statement of an historical fact constitutes a "forward-looking statement." Among other things, these statements relate to our financial condition, results of operations and business. When used in this news release, these forward-looking statements are generally identified by the words or phrases "may," "expect," "anticipate," "plan," "believe," "seek," "estimate," "project" or words of similar import. These forward-looking statements are not guarantees of future performance. These statements are based on management's expectations that involve a number of business risks, uncertainties and other factors that may cause the actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. Many factors are beyond our ability to control or predict. You are accordingly cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date that we make them. For more information on factors that could affect expectations, see the Company's Annual Report on Form 10-KSB for the year ended December 31, 2006, and other reports from time to time filed with or furnished to the Securities and Exchange Commission. This press release speaks only as of its date, and the Company disclaims any duty to update the information herein.

Computer Software Innovations, Inc.
Statements of Operations

                       For the Three Months Ended    For the Year Ended
                             December 31,               December 31,
                        ------------------------  ------------------------
                            2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
REVENUES
  Software Applications
   Division             $ 1,021,603  $   985,700  $ 5,019,860  $ 4,148,211
  Technology Solutions
   Division               4,860,289    4,958,942   23,533,670   20,138,513
                        ===========  ===========  ===========  ===========
    Net sales and
     service revenue      5,881,892    5,944,642   28,553,530   24,286,724

COST OF SALES
  Cost of Sales
   excluding
   depreciation,
   amortization, and
   capitalization           862,942      487,137    2,738,281    1,930,369
  Depreciation               14,729        6,782       65,011       35,095
  Amortization of
   capitalized software
   costs                    180,052      158,406      709,175      525,316
  Capitalized software
   costs                   (229,004)    (216,609)  (1,156,307)    (709,972)
                        -----------  -----------  -----------  -----------
    Software
     applications
     division COS           828,719      435,716    2,356,160    1,780,808
                        ===========  ===========  ===========  ===========

  Cost of Sales
   excluding
   depreciation           4,029,161    4,083,777   19,732,931   15,918,363
  Depreciation               22,093        6,459       91,516       41,667
                        -----------  -----------  -----------  -----------
    Technology
     solutions division
     COS                  4,051,254    4,090,236   19,824,447   15,960,030
                        ===========  ===========  ===========  ===========
    Total cost of sales   4,879,973    4,525,952   22,180,607   17,740,838
                        ===========  ===========  ===========  ===========
Gross profit              1,001,919    1,418,690    6,372,923    6,545,886

OPERATING EXPENSES
  Salaries, wages and
   benefits excluding
   stock-based
   compensation             928,637    1,076,905    3,442,095    3,210,882
  Stock based
   compensation              95,746            -      970,894      631,174
  Reverse merger costs       21,105            -       85,234      759,283
  Acquisition Expense           (56)           -       38,217            -
  Professional and
   legal compliance
   costs                    175,094      598,515      609,117      980,076
  Marketing Expense          (7,978)           -      116,661            -
  Travel and mobile
   costs                    132,446      127,213      462,417      400,412
  Depreciation               56,153       18,035      180,975       74,514
  Other selling,
   general and
   administrative
   expenses                 176,515      168,950      710,323      675,579
                        -----------  -----------  -----------  -----------
    Total operating
     expenses             1,577,662    1,989,618    6,615,933    6,731,920
                        ===========  ===========  ===========  ===========
Operating loss             (575,743)    (570,928)    (243,010)    (186,034)

OTHER INCOME (EXPENSE)
  Interest income               421            9        3,522        6,032
  Interest expense          (97,032)    (133,616)    (409,334)    (324,815)
  Net unrealized gain
   (loss) on warrants
   to purchase common
   stock                   (329,153)   1,587,902     (329,153)    (414,360)
  Gain/(loss) on
   disposal of property
   and equipment                  -            -            -          100
                        -----------  -----------  -----------  -----------
    Net other income
     (expense)             (425,764)   1,454,295     (734,965)    (733,043)
                        ===========  ===========  ===========  ===========
    Income (loss)
     before income
     taxes               (1,001,507)     883,367     (977,975)    (919,077)

INCOME TAX EXPENSE
 (BENEFIT)                 (189,798)     557,242      (98,361)    (162,467)
                        -----------  -----------  -----------  -----------
    Net income (loss)   $  (811,709) $   326,125  $  (879,614) $  (756,610)
                        ===========  ===========  ===========  ===========
BASIC EARNINGS (LOSS)
 PER SHARE              $     (0.24) $      0.12  $     (0.27) $     (0.29)
                        ===========  ===========  ===========  ===========
DILUTED EARNINGS (LOSS)
 PER SHARE              $     (0.24) $      0.03  $     (0.27) $     (0.29)
                        ===========  ===========  ===========  ===========
WEIGHTED AVERAGE SHARES
 OUTSTANDING
   Basic                  3,429,030    2,631,786    3,236,327    2,631,786
                        ===========  ===========  ===========  ===========
   Diluted                3,429,030   11,124,177    3,236,327    2,631,786
                        ===========  ===========  ===========  ===========



Computer Software Innovations, Inc.
Balance Sheet Data

                                                     December 31,
                                             -----------------------------
                                                 2006            2005
                                             -------------   -------------
                            ASSETS
CURRENT ASSETS
  Cash and cash equivalents                  $           -   $           -
  Accounts receivable                            3,828,190       5,891,950
  Inventories                                    2,569,382               -
  Prepaid expenses                                  56,174          70,962
  Income tax receivable                             43,651         192,918
                                             -------------   -------------

    Total current assets                         6,497,397       6,155,830
                                             =============   =============
PROPERTY AND EQUIPMENT , net                       771,472         411,835

COMPUTER SOFTWARE COSTS , net                    1,505,458         983,654

DEFERRED TAX ASSET                                 366,476               -

OTHER ASSETS                                       318,884          22,475
                                             =============   =============
                                             $   9,459,687   $   7,573,794
                                             =============   =============

       LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES
  Accounts payable                           $   3,995,021   $   2,349,785
  Deferred revenue                               2,079,492       1,498,418
  Deferred tax liability                           373,960         298,764
  Bank line of credit                              551,000       1,701,000
  Current portion of note payable                  109,274               -
  Subordinated notes payable to shareholders     2,250,400       2,250,400
                                             -------------   -------------
    Total current liabilities                    9,359,147       8,098,367
                                             =============   =============

NOTE PAYABLE, less current portion                 204,680               -

    Total Liabilities                        $   9,563,827   $   8,098,367
                                             =============   =============

SHAREHOLDERS’ EQUITY (DEFICIT)
  Common stock - $0.001 par value;
   40,000,000 shares authorized; 3,429,030
   and 2,631,786 shares issued and
   outstanding, respectively                         3,429           2,632
  Preferred stock - $0.001 par value;
   15,000,000 shares authorized; 7,012,736
   and 7,217,736 shares issued and
   outstanding, respectively                         7,013           7,218
  Additional paid-in-capital                     6,473,342       5,111,736
  Retained earnings (deficit)                   (6,525,773)     (5,646,159)
  Unearned stock compensation                      (62,151)              -
                                             -------------   -------------
    Total shareholders’ equity (deficit)          (104,140)       (524,573)
                                             =============   =============
                                             $   9,459,687   $   7,573,794
                                             =============   =============



Statement of Cash Flows
                                                  For the Year Ended
                                                     December 31,
                                             -----------------------------
                                                 2006            2005
                                             -------------   -------------
OPERATING ACTIVITIES
    Net loss                                 $    (879,614)  $    (756,610)
    Adjustments to reconcile net loss to net
     cash provided by (used for) operating
     activities

        Depreciation and amortization            1,046,677         676,592
        Stock option compensation expense          970,894         631,174
        Deferred income taxes                     (291,280)         86,134
        Gain on disposal of fixed assets                 -            (100)
        Unrealized loss on financial
         instrument                                329,153         414,360
    Changes in deferred and accrued amounts
        Accounts receivable                      2,063,760      (3,529,646)
        Inventories                             (2,569,382)              -
        Prepaid expenses and other assets          (73,921)          7,472
        Accounts payable                         1,645,236       1,575,960
        Deferred revenue                           581,074         285,520
        Taxes payable (receivable)                 149,267        (502,671)
                                             =============   =============
          Net cash provided by (used for)
           operating activities                  2,971,864      (1,111,815)
                                             -------------   -------------
INVESTING ACTIVITIES
    Purchase of property and equipment            (697,139)       (419,560)
    Capitalization of computer software         (1,156,307)       (709,972)
    Purchase of computer software                  (74,672)        (42,210)
    Deferred acquisition costs                    (167,318)              -
    Trademarks                                     (40,382)         (8,602)
                                             =============   =============
    Net cash used for investing activities      (2,135,818)     (1,180,344)
                                             -------------   -------------
FINANCING ACTIVITIES
    Net borrowings under line of credit         (1,150,000)      1,701,000
    Borrowings under note payable                  400,000               -
    Repayments of note payable                     (86,046)              -
    Payment of debt issuance costs                       -         (83,800)
    Proceeds from notes payable to
     shareholders                                        -       1,875,200
    Repayments under notes payable to
     shareholders                                        -      (1,500,000)
    Dividends paid                                       -      (3,460,000)
    Redemption of stock options                          -        (899,144)
    Purchase of VerticalBuyer shell                      -        (415,024)
    Payments for purchase of stock from
     shareholders                                        -      (3,624,800)
    Proceeds from issuance of preferred
     stock and related warrants                          -       5,042,250
                                             =============   =============
          Net cash used for financing
           activities                             (836,046)     (1,364,318)
                                             =============   =============
          Net decrease in cash and cash
           equivalents                                   -      (3,656,477)

CASH AND CASH EQUIVALENTS, BEGINNING OF
 PERIOD                                                  -       3,656,477
                                             =============   =============
CASH AND CASH EQUIVALENTS, END OF PERIOD     $           -   $           -
                                             =============   =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION:
Cash paid during the period for:
    Interest                                 $     499,749   $      57,851
    Income Taxes                                    43,651         308,500
NON CASH FINANCING ACTIVITY:
    Subordinated notes issued to
     shareholders for purchase of stock upon
     merger                                  $           -   $   1,875,200

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